Comparing the General Good Faith Provisions of the PECL and the

UCC: Appearance and Reality

Harry Flechtner

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 Contents

Contents Some web related information and sources 28

Information on this document copy . . . . . . . . . . . . . 28
Comparing the General Good Faith Provisions of the PECL Links that may be of interest . . . . . . . . . . . . . . . . 28
and the UCC: Appearance and Reality 1

Harry Flechtner 1

I. Introduction 1

II. Comparing the Text of the Good Faith Provisions of the

PECL and the UCC 5

III. Comparing the PECL and the UCC Good Faith Obliga-
tions as Applied 8
A. Application of the Good Faith Principle in General . . 8
B. Specific Examples of the Application of the Good Faith
Obligation . . . . . . . . . . . . . . . . . . . . . . . . 10
1. Termination for Trivial Breach . . . . . . . . . . 11
2. Good Faith in Contract Formation (PECL Illus-
tration 1) . . . . . . . . . . . . . . . . . . . 13
3. Luring a Party into a Time-Bar (PECL Illustration 2) 15
4. Applying Good Faith to Supersede the Parties' Agree-
ment (PECL Illustration 3) . . . . . . . . . . . . . . 17
5. Good Faith and Reliance, Including Reliance on a
Bank's Mistaken Payment (PECL Illustration 4) . . 19
6. Good Faith and Post-Contract-Formation Contingen-
cies (PECL Illustration 5) . . . . . . . . . . . . . . . 21

IV. Conclusion 26

Document Information (metadata) 27

Metadata . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Information on this document copy and an unofficial List of

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 Contents
1 Comparing the General Good Faith Provisions of the
PECL and the UCC: Appearance and Reality
2 Harry Flechtner*
3 I. Introduction
4 (1) Each party must act in accordance with good faith and fair
dealing.
5 (2) The parties may not exclude or limit this duty.
6 Article 1:201 of the Principles of European Contract Law.
7 Every contract or duty within this Act imposes an obligation of
good faith in its performance or enforcement.
8 Section 1-203 of the Uniform Commercial Code.
9 ...[T]h e obligations of good faith, diligence, reasonableness and
care prescribed by this Act may not be disclaimed by agreement
but the parties may by agreement determine the standards by
which the performance of such obligations is to be measured if
such standards are not manifestly unreasonable.
10 Section 1-102(3) of the Uniform Commercial Code.
11 Both the Principles of European Contract Law(“PECL ”), recently
issued in revised and more complete form by the Commission of
European Contract Law (chaired by Professor Ole Lando),1 and the
1 output or requirements as may occur in good faith.”) To keep the present
THE COMMISSION OF EUROPEAN CONTRACT LAW [hereinafter
“the Commission” or “the Lando Commission”], PRINCIPLES OF
*
Professor of Law, University of Pittsburgh School of Law. A.B. 1973,
Harvard College; A.M. 1975, Harvard University; J.D. 1981, Harvard
University School of Law. I wish to thank University of Pittsburgh Law
students Jamie Hudson and Jason Logue for their very valuable assistance in
preparing this article.
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Uniform Commercial Code (“UCC”), a compendium of commercial
laws widely adopted by U.S. states and territories,2 impose upon
parties to contracts a general obligation of good faith.3 The UCC
good faith obligation has been an important -- at any rate, oft
cited4 -- element of the Code's [page 296] jurisprudence. The good
faith obligation imposed by the PECL is also, undoubtedly, a key
doctrine under that contract law. The purpose of this article is to
compare the two.
There are general differences between the two good faith obligations 12
arising from the nature of the works of which they are part. The
PECL and its good faith provisions are the product of a committee
without law-making authority, and are designed as a statement of
derivative general legal norms rather than a description of any ex-
isting body of law. Thus, the PECL lacks formal legal authority,
although the drafters envision such authority arising through adop-
tion or use of the Principles by legislatures, judges, arbitrators, and
contracting parties.5 In contrast, the UCC (including its provisions
EUROPEAN CONTRACT LAW PARTS I AND II COMBINED AND
REVISED [hereinafter PECL] (Ole Lando and Hugh Beale eds. 2000).
2
References to the UCC in this article will be to the 2000 official version.
3
See PECL, supra note 1, art. 1:201, and UCC §1-203 and 1-102(3),
quoted in the headnote to this article. Both the PECL and the UCC impose
other specific good faith obligations in connection with particular rights,
obligations or rules. See, e.g., PECL art. 4:109(2) (permitting a court to
adapt an unconscionable contract “to bring it into accordance with what
might have been agreed had the requirements of good faith and fair dealing
been followed”; UCC §2-305(2) (specifying that in output and requirement
contracts the quantity of goods tendered or demanded must be “such actual
article within reasonable bounds, my observations are limited to the general
good faith provisions of the PECL (art. 1:201) and the UCC (§1-203),
except where otherwise specifically indicated.
4
The Uniform Commercial Code Case Digest includes over 200 pages of
digest entries covering cases citing the general good faith provision of the UCC.
See UCC REP.-DIG. (2000 REVISION) (Pike and Fischer, eds.) 426-629.
5
See PECL, supra note 1, at xxiii-xxiv (Introduction).
1
 Contents
on good faith) has been adopted as law throughout the U.S.6
The good faith obligations imposed by the PECL and the UCC also
13
differ in scope. The PECL contains general contractual principles
applicable to all varieties of contracts, regardless of subject matter.
In contrast, only certain specified varieties of contracts fall under
the UCC. For example, contracts for the sale of goods are governed
by Article 2 of the UCC,7 whereas contracts for the sale of real
property are beyond the scope of the UCC and its good faith pro-
visions.8 Contracts which are not [page 297] covered by the UCC
6
Forty-nine states, the District of Columbia, and the Virgin Islands have
adopted the UCC more or les s in toto. See 1 U.L.A. 1-2 (“Uniform
Commercial Code: Table of Jurisdictions Wherein Code has been Adopted”)
(Master ed. 1989 and Supp. 2001). Louisiana has not adopted Articles 2
(sales) or 2A (leases) of the UCC, but it has adopted other parts of the Code,
including Article 1 which contains the UCC's general good faith provisions.
See id. at 2 n. 3. Individual jurisdictions have sometimes enacted provisions
that vary from the official text of the UCC, although no jurisdiction has varied
the text of §1-203 on good faith. See id.,“Explanation” at IV (explaining
that variations by individual jurisdictions from the official text of particular
UCC provisions are described in sections entitled “Action in Adopting
Jurisdictions” in the text discussing each provision) and text at 109-18
(omitting section on “Action in Adopting Jurisdictions” from discussion of
UCC §1- 203 on good faith).
7
UCC §2-102 (“Unless the context otherwise requires, this Article applies
to transactions in goods”).
8
The subjects covered by the UCC are as follows: Article 1, general
provisions; Article 2, sales of goods; Article 2A, leases of goods; Article 3,
negotiable instruments; Article 4, bank deposits and collections; Article 4A,
funds transfers; Article 5, letters of credit; Article 6, bulk sales; Article 7,
documents of title; Article 8, investment securities; Article 9, secured
transactions. Articles 10 and 11 contain technical provisions governing
effective dates, repeal of prior laws and transition rules. Note that significant
parts of the UCC focus not on the law governing parties to a contract, but on
the law governing the rights and duties of third parties. Much of UCC Article
9, for example, deals with the rights of a debtor's creditors and other
claimants to collateral that is subject to a security agreement between the
debtor and a secured creditor .
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are governed by the general law of contracts, which in most U .S.
jurisdictions also imposes an obligation of good faith on contract-
ing parties.9 The good faith [page 298] obligation imposed by the
9
While the law is not always clear, the following states appear to imply an
obligation of good faith in every contract: Alaska (see McConnell v. State,
Dept. of Health and Social Services, Div. of Medical Assistance, 991 P .2d
178, 184 (Alaska 1999) (“in every contract ... there is an implied covenant of
good faith and fair dealing. ...” quoting Guin v. Ha, 591 P .2d 1281, 1291
(Alaska, 1979) and Arco Alaska, Inc. v. Akers, 753 P.2d 1150 (Alaska 1988));
Delaware (see Blish v. Thompson Automatic Arms Corp., 64 A.2d 581 (De.
Sup. Ct. 1948) and Shuster v. Derocili, 2001 WL 682105 (Del. Super. Ct.
2001)); Idaho (see Luzar v. Western Sur. Co., 692 P.2d 337 (Idaho 1984) and
Raedlien v. Boise Cascade Corp., 931 P.2d 621 (Idaho 1996)); Massachusetts
(see Anthony's Pier Four, Inc. v. HBC Associates, 583 N.E.2d 806 (Mass.
1991) and Fortune v. NCR, 364 N.E.2d 1251 (Mass. 1977)); Missouri (see
Slone v. Purina Mills, Inc., 927 S. W .2d 358 (Mo. App. 1996) and Morton v.
Hearst Corp., 779 S.W.2d 268, 273 (Mo. App. 1989) (“Missouri law implies a
covenant of good faith and fair dealing in every contract”)); Montana (see
Story v. City of Bozeman, 791 P.2d 767 (Mont. 1990) and Kittelson v. Archie
Cochrane Motors, 813 P.2d 424 (Mont. 1991)); New Hampshire (see Seaward
Constr. Co. v. City of Rochester, 383 A.2d 707 (N.H. 1978) and Harper v.
Healthsource NH, 674 A.2d 692 (N.H. 1996)); New Jersey (see Palisades
Properties, Inc. v. Brunetti, 207 A.2d 522 (N.J. 1965) and Bonczek v.
Carter-Wallace, Inc., 701 A.2d 742 (N.J. Super. 1997)); South Carolina (see
Commercial Credit Corp. v. Nelson Motors, Inc., 147 S.E.2d 481 (S.C. 1966)
and Williams v. Reidman, 529 S.E.2d 28 (S.C. App. 2000»; and Tennessee
(Wallace v. National Bank of Commerce, 938 S.W.2d 684 (Tenn. 1996) and
Williams v. Maremont, Inc., 776 S.W.2d 78 (Tenn. App. 1988)).
The following states recognize a good faith obligation except in
employment-at-will contracts: California (see Nelson v. Abraham, 177 P.2d
931 (Cal. 1947) and Guz v. Bechtel Nat'l, Inc., 100 Cal. Rptr. 2d 352 (Cal.
2000)); Colorado (see Amoco Oil Co. v. Ervin, 908 P.2d 493 (Colo. 1995) and
Pittman v. Larson Distrib. Co., 724 P.2d 1379 (Colo. App. 1986));
Connecticut (see Commerce Intern. Co. v. United States, 338 F.2d 81 (Ct.
CI. 1964) and Carbone v. Atlantic Richfield Co., 528 A.2d 1137, 1142 (Conn.
1987) (“Where an employment contract is clearly terminable at will, however,
a party cannot ordinarily be deemed to lack good faith in exercising this right.
Thus, absent a showing that the discharge involves an impropriety which
contravenes some important public policy, an employee may not challenge a
2
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dismissal based upon an implied covenant of good faith and fair dealing”);
Florida (see Sheck v. Burger King, 798 F. Supp. 692 (S.D. Fla 1992) and
Crawford v. David Shapiro and Co., 490 So. 2d 993 (Fla. App. 1986));
Hawaii (see Best Place, Inc. v. Penn America Ins. Co., 920 P .2d 334 (Haw.
1996) and Parnar v. Americana Hotels, Inc. 652 P.2d 625 (Haw. 1982));
Illinois (see Martindell v. Lake Shore Nat'l Bank, 154 N .E.2d 683 (Ill. 1958)
and Harrison v. Sears, Roebuck, and Co., 546 N .E.2d 248 (Ill. App. 1989));
Iowa (see Midwest Management Corp. v. Stephens, 291 N.W.2d 896 (Iowa
1980) and Phipps v. IASD Health Serv. Corp., 558 N.W.2d 198 (Iowa 1977));
Kansas (see Moriss v. Coleman Co., 738 P.2d 841,851 (Ran. 1987) (“the
principle of law stated in Restatement (Second) of Contracts §205, that
every contract imposes upon each party a duty of good faith and fair dealing
in its performance and its enforcement, is overly broad and should not be
applicable to employment-at-will contracts”); Louisiana (see Bond v.
Allemand, 632 So.2d 326 (La. App. 1993) and Stanton v. Tulane Univ., 777
So. 2d 1242 (La. App. 2001)); Michigan (see Hubbard Chevrolet Co. v.
GMC, 873 F .2d 873 (3d Cir. 1989) and Hammond v. United of Oakland,
Inc., 483 N.W.2d 652 (Mich. App. 1992)); Minnesota (see In re Hennepin
County 1986 Recycling Bond Litigation, 540 N .W .2d 494 (Minn. 1995) and
Hunt v. IBM Mid America Employees Federal, 384 N .W .2d 853 (Minn.
1986)); Mississippi (see UHS-Qualicare, Inc. v. Gulf Coast Community Hosp.,
Inc., 525 So. 2d 746 (Miss. 1987) and Hartle v. Packard Elec., a Div. of
General Motors Corp. 626 So.2d 106 (Miss.,1993)); Nebraska (see Cimino v.
FirsTier Bank, N.A., 530 N.W.2d 606 (Neb. 1995) and Stratton v. Chevrolet
Motor Div., General Motors Corp., 428 N.W.2d 910 (Neb. 1988)); Nevada (see
Hilton Hotels Corp. v. Butch Lewis Productions, Inc. 808 P.2d 919 (Nev.
1991) and Martin v. Sears, Roebouck, and Co., 899 P.2d 551 (Nev. 1995));
New Mexico (see Watson Truck and Supply Co. v. Males, 801 P.2d 639 (N.M.
1990) and Sanchez v. The New Mexican, 738 P.2d 1321 (N.M. 1987)); New
York (see Kirke La Shelle Co. v. Paul Armstrong Co., 188 N.E. 163 (N.Y.
1933) and Ingle v. Glamore, 535 N.E.2d 1311 (N.Y. 1987)); North Carolina
(see Weyerhauser Co. v. Godwin Bldg. Supply Co., 253 S.E.2d 625 (N.C.
App. 1979) and Salt v. Applied Analytical, Inc., 412 S.E.2d 97 (N.C. App.
1991)); Oklahoma (see First Nat. Bank and Trust Co. v. Kissee, 859 P.2d 502
(Okla. 1993) and Burk v. K-Mart Corp., 770 P.2d 24 (Okla. 1989)); Oregon
(see Perkins v. Standard Oil Co., 383 P.2d 107 (Or. 1963) and Elliot v.
Tektronix Inc., 796 P.2d 361 (Or. App. 1990)); Pennsylvania (see Somers v.
Somers, 613 A.2d 1211 (Pa. Super. 1992) and McLaughlin v. Gastrointestinal
Specialists, 750 A.2d 283 (Pa. 2000)); South Dakota (see Garrett v.
BankWest, Inc., 459 N.W.2d 833 (S.D. 1990) and Breen v. Dakota Gear and
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Joint Co., 433 N.W.2d 221 (S.D. 1988)); Utah (see Zion's Properties, Inc. v.
Holt, 538 P.2d 1319 (Utah 1975) and Sanderson v. First Sec. Leasing Co., 844
P.2d 203 (Utah 1993)); Vermont (see Shaw v. E.I. DuPont De Nemours and
Co., 226 A.2d 903 (Vt. 1967) and Ross v. Times Mirror, 665 A.2d 580 (Vt.
1995)); Washington (see Miller v. Othello Packers, Inc., 410 P.2d 33 (Wash.
1966) and Thompson v. St. Regis Paper Co., 685 P.2d 1081 (Wash. 1984));
Wisconsin (see Chakya v. Santini, 176 N .W .2d 561 (Wis. 1970) and Kempfer
v. Automated Finishing, 564 N.W.2d 692 (Wis. 1997)); and Wyoming (see
Roussalis v. Wyoming Medical Ctr., Inc., 4 P.3d 209 (Wyo. 2000) and
VanLente v. University of Wyo. Research Corp., 975 P.2d 594 (Wyo. 1999)).
In the following states that recognize an implied obligation of good faith under
their general law of contract, it is not clear if the obligation extends to
employment-at-will agreements: Alabama (see World's Exposition Shows v.
Benevolent Protective Order of Elks, 180 So. 721 (Ala. 1939)); Arizona (see
Rawlings v. Apodaca, 726 P .2d 565 (Ariz. 1986) (insurance contracts) and
Arizona's. Towing Professionals, Inc. v. State, 993 P.2d 1037 (Ariz. App.
1999)); Arkansas (see Cantrell-Waind and Assoc., Inc. v. Guillame
Motorsports, Inc., 968 S.W.2d 72 (Ark. App. 1998)); Georgia (see Whisenant
v. Fulton Federal Savings and Loan Ass'n, 406 S.E.2d 393 (Ga. App. 1991));
Kentucky (see Odem Realty Co. v. Dyer, 45 S.W.2d 838 (Ky. 1932));
Maryland (see Food Fair Stores, Inc. v. Blumberg, 200 A.2d 166 (Md. 1964));
and Rhode Island (see Ide Farm and Stable, Inc. v. Cardi, 297 A.2d 643 (R.I.
1972)).
The following states do not appear to recognize an implied covenant of good
faith as part of their general law of contract: Indiana (see First Federal Sav.
Bank v. Key Markets, Inc., 559 N.E.2d 600 and. 1990)); Maine (see First NH
Banks Granite State v. Scarborough, 615 A.2d 248 (Me. 1992)); North
Dakota (see Hillesland v. Federal Land Bank Ass'n, 407 N.W. 2d 206 (N.D.
1987)); Texas (see English v. Fischer, 660 S.W.2d 521 (Tex. 1983)); and
Virginia (see Ward's Equipment, Inc. v. New Holland North America, Inc.,
493 S.E.2d 516 (Va. 1997)).
It is not clear whether Ohio law recognizes an implied covenant of good faith
as part of its general contract law. See Sammarco v. Anthem Ins. Cos., 723
N.E.2d 128, 135 (Ohio App. 1998) (stating that Ohio law imposes an implied
covenant of good faith in “some contracts, such as those between an insurer
and an insured and to commercial contracts regulated by Ohio's Uniform
Commercial Code,” but failing to state whether the implied obligation extends
to other contracts) (citations omitted). Courts apparently have not ruled on
whether West Virginia general contract law encompasses an implied obligation
of good faith.
3
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common or general law of contracts, [page 299] furthermore, corre-
sponds in most respects to the good faith obligation of the UCC.10
Nevertheless, the UCC good faith provisions which I focus upon in
this article apply to a more limited group of contracts than does
the good faith obligation imposed by the PECL.
14 Beyond these general differences in the good faith obligations, which
derive from the nature of the PECL and the UCC, both documents
take similar approaches in imposing a direct good faith obligation
on the parties to a contract11 and in restricting the right of the
parties to contract out of this obligation. Indeed, a careful com-
parison of the text of the good faith [page 300] provisions of the
two documents, which I pursue in Part II of this Article, reveals
10
See. e.g., Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 169-170
(3rd Cir. 2001) (“Good faith is defined in the Uniform Commercial Code, as
adopted in New Jersey, as `honesty in fact in the conduct or transaction
concerned.' Although the UCC is inapplicable to the Emerson-Orlon License
Agreement, which was not a contract for the sale of goods, it is unlikely the
concept of good faith would be defined differently by the New Jersey Supreme
Court merely because the contract at issue is a license,” quoting N.J. Stat.
Ann. 12A:I-201(19)).
11
Contrast the good faith provision of the United Nations Convention on
Contracts for the Sale of Goods, Apr. 11,1980, S. TREATY DOC. NO.98-9
(1983),19 I.L.M. 668 (1980) [hereinafter CISG] art. 7(1) (entered into force on
Jan. 1., 1988), available in 15 U.S.C.A. app. at 49 (West Supp. 1996), 52 Fed.
Reg. 6262-80,7737 (1987), U.N. DOC. A/CONF. 97/18 (1980). Article 7(1) of
the CISG does not directly impose an obligation of good faith on the parties
to contracts of sale within its scope, but rather imposes an obligation on those
interpreting the CISG to do so in a fashion that promotes, inter alia,“the
observance of good faith in international trade.” For a discussion of this
distinction and of the CISG's good faith provision in general, see PETER
SCHLECHTRIEM, COMMENTARY ON THE UN CONVENTION ON THE
INTERNATIONAL SALE OF GOODS (CISG) Art. 7 ¶¶ 15-18 (trans.
Geoffrey Thomas) (2nd ed. in translation); Bruno Zeller, The UN Convention
on Contracts for the In- ternational Sale of Goods (CISG) - A Leap Forward
towards Unified International Sales Laws, 12 PACE INT'L L. REV. 79, 92-103
(2000).
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further hidden similarities. There are, unsurprisingly, some textual
differences between the two rules and, as the discussion in Part II
demonstrates, these textual differences create some divergence in
the good faith obligations imposed by the PECL and the UCC. On
the whole, however, the approaches of the general good faith provi-
sions of the two documents are, from a textual perspective, notably
similar.
“Good faith” is a notoriously amorphous and variable concept. 15
Thus it is the interpretation and application of the doctrine that
provides the most important point of comparison for the two sets
of rules. The UCC has been in force since the 1950's, and its good
faith provisions have been applied in hundreds of cases. In con-
trast, the PECL is a new phenomenon and its good faith rules, to
my knowledge, have not been applied to actual cases. The tools
for a preliminary comparison of how the good faith obligation of
the two documents will be applied, nevertheless, already exist. The
comment to PECL Article 1:201 includes five concrete illustrations
of how the drafters conceive its good faith rule will operate, as well
as other suggestions concerning the application of the good faith
obligation to particular situations. In Part III of this article I will
explore how U.S. law, and the UCC good faith provision in par-
ticular, would apply to the factual examples adduced in the PECL
comment. This discussion reveals mixed results. First, there exist
some notable similarities in the operation of the good faith obliga-
tion under the PECL and the UCC. Second, there are some situa-
tions in which U.S. law would likely reach the same result as under
the PECL by invoking doctrines other than good faith. Finally,
there may be some important situations in which the outcome un-
der U.S. law would probably diverge from that suggested by the
comment to PECL Article 1:201. Although it is important to keep
in mind the similarities in the good faith principles of the PECL and
the UCC, it is also important to recognize that the divergent out-
comes appear to reflect deep-seated differences in the legal cultures
4
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behind the two documents. [page 301]
16 II. Comparing the Text of the Good Faith Provisions
of the PECL and the UCC
17 The basic good faith provision of the PECL, Article 1:201(1), states
simply that “[e]ach party must act in accordance with good faith
and fair dealing.” The corresponding provision of the UCC, section
1-203, provides that “[e]very contract or duty within this Act [i.e.,
the UCC] imposes an obligation of good faith in its performance or
enforcement.” There are at least two noteworthy differences in the
phrasing of these provisions.
18 First, the PECL imposes obligations of both “good faith” and “fair
dealing,” whereas the UCC limits the obligation simply to “good
faith.” Part E of the comment to PECL Article 1:201, entitled “Good
faith and fair dealing distinguished,” suggests that the double obli-
gation imposed by the PECL is not mere verbiage, but carries an
important distinction: “ `Good faith' means honesty and fairness
in mind, which are subjective concepts. ... `Fair dealing' means
observance of fairness in fact, which is an objective test. ...”12
This distinction between the double-edged, subjective and objec-
tive obligation imposed by the PECL and the single obligation of
“good faith” imposed by UCC section 1-203 is both reinforced and
limited by the UCC definitions of “good faith.”13 The general UCC
definition of “good faith” in section 1-201(19) states that the term
means “honesty in fact in the conduct or transaction concerned.”
This definition is widely recognized as creating a subjective stan-
12
PECL, supra note 1, art. 1:201, cmt. E, at 115-116 (“Good faith and fair
dealing distinguished”).
13
The PECL, which generally eschews statutory definitions of terms, does not
contain a formal definition of either “good faith” or “fair dealing.” The language
quoted in the text from the PECL art. 1-201, cmt. E, distinguishing “good
faith” and “fair dealing,” however, contains de facto definitions of the terms.
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dard of good faith,14 often described as the “pure heart, empty
head” [page 302] standard.15
Merchants involved in sale or lease transactions governed by UCC 19
Articles 2 or 2A, as well as those dealing with negotiable instru-
ments governed by UCC Article 3, funds transfers governed by
UCC Article 4A, transfers of investment securities governed by
UCC Article 8, and security interests in personal property governed
by UCC Article 9, are subject to an extended definition of “good
faith” --“honesty in fact and the observance of reasonable commer-
cial standards of fair dealing.”16 This definition encompasses both
a subjective obligation (“honesty in fact”) and an objective obli-
14
See, e.g., First Nat. Bank of Cicero v. Lewco Securities Corp., 860 F.2d
1407, 1416 (7th Cir. 1988) (referring to “the subjective standard of good faith
found in the general definitions section of the UCC”); 1 WILLIAM D.
HAWKLAND, UNIFORM COMMERCIAL CODE SERIES §1-203:1 at
art.1-218 (1998) (“Section 1-201(19) states the generally applicable subjective
`white heart and empty head' standard which concentrates on the actual state
of mind of the party rather than on the state of mind a reasonable man would
have had under the same circumstances. Thus, the section defines good faith
as honesty in fact in the conduct or transaction concerned.”); Robert S.
Summers, “Good Faith” in General Contract Law and the Sales Provisions of
the Uniform Commercial Code, 54 VA. L. REV 195, 207-11 (1968).
15
See, e.g., First Nat. Bank of Cicero v. Lewco Securities Corp., 860 F.2d
1407, 1416 (7th Cir. 1988); First Nat. Bank of Cicero v. U.S., 664 F. Supp.
1169, 1173 (N.D. 111.1987); Mariani v. Redman and Ranch, Inc., 358 F.
Supp. 1011, 1013 (N.D. Ill. 1973); Denise R. Boklach, Comment: Commercial
Transactions: U.C.C. Section 1-201(19) Good Faith - Is Now the Time to
Abandon the Pure Heart/Empty Head Test?, 45 OKLA. L. REV. 647 (1992).
Cf. HAWKLAND, supra note 14 (“white heart and empty head” standard).
16
UCC §2-103(1)(b), defining “[g]ood faith in the case of a merchant” for
purposes of UCC Article 2. The definition of good faith for merchants in
UCC§2- 103(1)(b} adds the phrase “in the trade” at the end. Pursuant to
UCC§2A-103(3), the Article 2 definition of “good faith” for merchants
applies under UCC Article 2A on leasing of goods. UCC§3-103(a)(4)
4A-105(a)(6), 8-102(a)(10) and 9-102(a)(43) impose the definition of “good
faith” quoted in the text to UCC Articles 3, 4A, 8 and 9 respectively.
5
 Contents
gation (“observance of reasonable commercial standards”);17 the
statutory definition goes so far as to label the objective aspect an
obligation of “fair dealing.”18 This, obviously, parallels the subjec-
tive/objective “good faith and fair dealing” obligation imposed by
PECL Article 1:201(1). The extended definition applies only to cer-
tain transactions governed by the UCC. Thus it limits but does not
totally eliminate the difference between the good faith obligations
imposed by the PECL and the UCC. For example, non-merchants
involved in sales or leases and those engaged in letter of credit
transactions governed by UCC Article 5 are subject only to the
subjective good faith obligation.19 It has been argued, [page 303]
furthermore, that the “objective” aspect of the good faith defini-
tion in UCC section 2-103(1)(b), applicable to merchants engaged
in sales transactions, applies only if the trade involved in the trans-
action has developed standards of fair dealing, and only if those
standards are “reasonable”; in the absence of such reasonable trade
standards, it is asserted, only the subjective aspect of good faith
applies.20 In contrast, the obligation of fair dealing in PECL Ar-
ticle 1:201(1) is not limited to circumstances in which there are
reasonable trade standards of fair dealing (although if they exist,
such standards should presumably influence the interpretation of
the obligation of fair dealing). This might suggest a difference in
the application of the UCC and the PECL good faith obligations
17
For discussion recognizing the “objective” aspect of the “good faith”
definition in UCC §2-103(I)(b), see HAWKLAND, supra note 14, arts. 1-218
-1-219.
18
Indeed, some courts have rather cavalierly characterized UCC§1-203 as
creating a general duty of “good faith and fair dealing.” See Conoco Inc. v.
Inman Oil Co., Inc., 774 F.2d 895, 908 (8th Cir.1985); Omega Engineering,
Inc. v. Eastman Kodak Co., 908 F. Supp. 1084, 1091 (D. Conn. 1995).
19
The good faith obligations of non-merchants under Articles 2 and 2A would
be governed by the purely subjective (“honesty in fact”) definition in
UCC§1- 201(19). UCC Article 5 has explicitly adopted the purely subjective
definition of good faith. See UCC §5-102(a)(7) and the comment thereto.
20
See Summers, supra note 14, at 213.
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in circumstances where proof of reasonable trade standards is lack-
ing.21
Recently, the organizations that sponsor the UCC -- the American 20
Law Institute (“ALI”) and the National Conference of Commission-
ers on Uniform State Law (“NCCUSL ”) -- have approved amend-
ments to Article 1 that would alter the general UCC definition of
“good faith” to require both subjective “honesty in fact” and ob-
jective “observance of reasonable commercial standards of fair deal-
ing.”22 The new definition would apply throughout the UCC except
under Article 5 (letters of credit).23 The amendments would bring
the UCC good faith obligation closer to the one provided for in the
PECL. This revision to the UCC definition of “good faith” was ap-
proved very recently. For this reason, the amended definition has
not yet been adopted by any jurisdiction. [page 304]
Another significant textual difference between the UCC and the 21
PECL good faith provisions is that the good faith obligation im-
posed by UCC section 1-203 applies only if and when a contract
falling within the scope of the UCC has been formed. The UCC pro-
vision states that the good faith obligation arises from a “contract
or duty within this Act,” and phrases the obligation in terms of “its
[i.e., the contract's or duty's] performance or enforcement.”24 Thus
21
In other words, absent proof of reasonable trade standards, the UCC might
not impose an “objective” good faith obligation on merchants involved in sales
transactions, whereas lack of such trade standards would not impact the
objective duty of fair dealing under the PECL.
22
UCC §1-201(1)(19), Revision of Uniform Commercial Code Article 1-
General Provisions, Approval Draft Prepared for the Annual Meeting of the
National Conference of Commissioners on Uniform State Laws August 10-17,
2001, (§1-201(a)(19)), available at
<http://www.law.upenn.edu/bll/ulc/ulc-frame.htm> (last visited August 31,
2001).
23
See UCC §5-102(a)(7). UCC Article 5 contains its own definition of
“good faith” limited to “honesty in fact.”
24
UCC §1-203.
6
 Contents
under the UCC, “[g]ood faith and fair dealing are not independent
requirements; instead, they arise from, and are dependent upon,
the existence of an enforceable contract.”25 While some courts have
held that, in certain circumstances, the parties' preliminary nego-
tiations and agreements have resulted in a contract to negotiate
in good faith toward a final agreement,26 U .S. law continues to
adhere to the rule that there is no good faith obligation before a
contract has been formed. PECL Article 1:201, in contrast, does
not condition the good faith duty it imposes on the existence of a
formed contract: it states, very generally, that “[e]ach party must
act in accordance with good faith and fair dealing,”27 without lim-
iting the obligation to situations where contractual rights or duties
have already arisen. This unconditional phrasing stands in con-
trast to an earlier version of the PECL good faith provision, which
stated: “In exercising his rights and performing his duties each
party must act in accordance with good faith and fair dealing.”28
The phrasing of the earlier version implied that the good faith obli-
gation was confined to situations where a contract and its attendant
rights and duties already existed. The change in the phrasing to
the current version rebuts that implication. Several other parts of
the current version of the PECL confirm this conclusion. A new
provision, PECL Article 2:301, explicitly extends the obligation of
good faith and fair dealing to [page 305] the negotiation stage of
contract formation.29 The comment to PECL Article 1:201 states
25
Omega Engineering, Inc. v. Eastman Kodak Co., 908 F. Supp. 1084, 1091
(D. Conn. 1995).
26
See, e.g., Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d
275 (7th Cir. 1996).
27
PECL, supra note 1, art. 1:201.
28
THE COMMISSION ON EUROPEAN CONTRACT LAW, THE
PRINCIPLES OF EUROPEAN CONTRACT LAW: PART 1:
PERFORMANCE, NON-PERFORMANCE AND REMEDIES, art. 1-106
(Ole Lando and Hugh Beale, eds. 1995).
29
PECL Article 2:301 provides:
“(1) A party is free to negotiate and is not liable for failure to reach an
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that the culpa in contrahendo doctrine found in Article 2:301 is a
“particular application” of the general good faith duty imposed by
the PECL.30 An illustration in the comment to the PECL's general
good faith provision, furthermore, applies the good faith obligation
to the pre-contract formation period.31 Thus, it is clear from a
textual comparison that the scope of the good faith obligation im-
posed by the PECL is broader than that under the UCC: the PECL
obligation extends to the negotiation phase of the relationship be-
tween the parties, whereas the UCC good faith obligation does not.
This difference is explored further in the discussion below regarding
application of the doctrines.32
Both the PECL and the UCC expressly restrict the power of con- 22
tracting parties to disclaim or limit the obligation of good faith.
The PECL limitation on party autonomy in this area appears, on its
face, complete; Article 1:201(2) provides simply that “[t]he parties
may not exclude or limit this duty [i.e., the duty of good faith and
fair dealing imposed in Article 1:201(1)].”33 The comment to PECL
Article 1:201 explains that this provision means “that the parties
cannot by their agreement exclude the duty of good faith and fair
dealing ...[n]or can they vary its effects.”34 The UCC limitation on
the parties' ability to contract out of the good faith obligation,
agreement.
(2) However, a party which has negotiated or broken off negotiations contrary
to good faith and fair dealing is liable for the losses caused to the other party.
(3) It is contrary to good faith and fair dealing, in particular, for a party to
enter into or continue negotiations with no real intention of reaching an
agreement with the other party.”
30
See PECL, supra note 1, art. 1:201, cmt. A, at 113. (“Good faith and fair
dealing”).
31
See PECL, supra note 1, art. 2:101, cmt. B, illus. 1, at 114 (“Not confined
to specific rules”).
32
See infra text accompanying notes 50-82.
33
PECL, supra note 1, art. 1:201(2).
34
PECL, supra note 1, art. 1:201, cmt. H, at 114 (“Article 1:201 is
mandatory”).
7
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
found in UCC section 1-102(3), is also by its terms virtually im-
pregnable -- “the obligations of [inter alia] good faith ... prescribed
by this [page 306] Act may not be disclaimed by agreement.”35 The
same UCC provision, however, allows for minimal party autonomy
when it states that “the parties may by agreement determine the
standards by which the performance of such obligations is to be
measured if such standards are not manifestly unreasonable.” The
ability of parties, under the UCC, to define standards of good faith
(provided such standards are not “manifestly unreasonable”) may
suggest a minor difference from the PECL. Comment H to PECL
Article 1:201, however, hints at a similar allowance of party auton-
omy:
23 “What is good faith will, however, to some extent depend upon
what was agreed upon by the parties in their contract. Thus,
parties may agree that even a technical breach may entitle the
aggrieved party to refuse performance, when, for instance, its
agents can ascertain a technical breach but not whether it is a
trifle or not.”36
24 III. Comparing the PECL and the UCC Good Faith
Obligations as Applied
25 A. Application of the Good Faith Principle in
General
26 While textual comparison takes us part of the way in the quest
for similarities and differences in the good faith obligations of the
PECL and the UCC, a more critical tool for comparing the obliga-
tions is to understand the manner in which they will be interpreted
and applied. With a concept as vague as “good faith” at their
35
UCC §1-102(3).
36
Id.
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core, PECL Article 1:201 and UCC section 1-203 are subject to an
extremely broad range of constructions. As the “Notes” to PECL
Article 1:201 indicate, even among European States there is “a con-
siderable difference between the legal systems as to how extensive
and how powerful the penetration of the principle [of good faith
and fair dealing] has been,” and the various European jurisdictions
“have not given it the same degree of penetration into their law of
contract.”37 The PECL Notes describe a “spectrum” of applications
of the good faith principle [page 307] :
“At the one end of the spectrum figures a system where the 27
principle has revolutionized the contract law (and other parts
of the law as well) and added a special feature to the style of
that system (GERMANY). At the other end we find systems
which do not recognize a general obligation of the parties to
conform to good faith, but which in many cases by specific
rules reach the results which the other systems have reached
by the principle of good faith (ENGLAND and IRELAND). ...
The other systems in the European Union range between the
two opposites.”38
It is clear that, in general, the drafters of the PECL favor an ex- 28
tensive and robust application of the good faith principle along the
lines of the Treue und Glauben concept in the German system, and
they expressly reject the restrained use of the good faith concept in
English law:
“There are many examples of [English and Irish] courts inter- 29
preting the terms of a contract in such a way as to prevent one
party using a clause in circumstances in which it was probably
not intended to apply. ... Thus to some extent Article 1:201
[of the PECL] merely articulates trends already present in En-
37
PECL, supra note 1, at 116-17.
38
Id.
8
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
glish law. But the English approach based on construction of
the agreement is a weak one as it cannot prevail against clear
contrary provisions in the agreement ... or even clear implica-
tion from the circumstances. ... Thus Article 1:201 represents
an advance on English and Irish law.”39
30 The general approach under the UCC at first appears to resemble
that of the PECL. Unlike English and Irish law, the UCC clearly
imposes a general good faith obligation on contracting parties. The
manner in which the UCC good faith provisions are interpreted
and applied, however, tends to bring them closer to the English
approach.
31 For example, the Notes to PECL Article 1:201 quoted above criti-
cize the inability of English law to overcome express provisions of
a contract by application of the good faith principle. As explained
below at greater length,40 American courts have consistently held
that the UCC good faith provision cannot be used to contradict
or overrule express contractual terms. The Notes to PECL Article
1:201 also reject the English approach of [page 308] confining the
good faith concept to a principle of interpretation or construction
of the contract. The official comment to UCC section 1-203, in con-
trast, makes it clear that the UCC good faith principle is strictly one
of contract interpretation: “the doctrine of good faith merely di-
rects a court towards interpreting contracts within the commercial
context in which they are created, performed, and enforced. ...”41
This language was added to the UCC comment by the UCC Perma-
nent Editorial Board (the “Board”) in 1994, and the commentary
that accompanied the amendment strenuously emphasized that the
UCC good faith provision is merely an interpretative tool for dis-
covering the reasonable expectations of the parties based on their
39
Id. at 117-18.
40
See infra text accompanying notes 94-108.
41
UCC §1-203, cmt.
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agreement.42
The 1994 amendments to the official comment to UCC section 1-203 32
were designed to address a specific issue concerning the construc-
tion of the UCC good faith obligation, and the manner in which
that issue was resolved also suggests considerable distance from the
robust good faith principle of the PECL. Before the comment was
amended, a question had arisen whether an alleged violation of the
UCC good faith obligation that was not connected to a breach of a
more specific duty imposed by the contract or the rules of the UCC
would support an “independent” cause of action. Several courts
had held that the UCC good faith provision was “directive” rather
than “remedial” -- i.e., merely alleging a breach of the duty of good
faith under UCC section 1-203, as opposed to alleging a breach of
a particular contract provision or duty imposed by the UCC (as in-
terpreted in “good faith”), was not a sufficient basis for claiming a
remedy.43 Although not all courts agreed,44 the Board came down
clearly on the side of those decisions that had restricted the use
of the good faith principle. The Board concluded that [page 309]
“Section 1-203 does not support a cause of action where no other
basis for a cause of action exists,”45 and it added the following
language to the Official Comment to that section:
42
See Permanent Editorial Board of the Uniform Commercial Code, PEE
Commentary on the Uniform Commercial Code: Commentary No.10 (Section
1- 203) Final Draft, February 10,1994, reprinted in[FINDEX and PEB
Commentaries] UCC REF. Serv. (1994).
43
See, e.g., Tanner v. Church's Fried Chicken, 582 So. 2d 449,451-52 (Ala.
1991); Korogluyan v. Chicago Title and Trust Co., 572 N.E.2d 1154,1161 (Ill.
App. 1991); Adolph Coors Co. v. Rodriguez, 780 S.W.2d 477,482 (Tex. App.
1989).
44
See, e.g., Rigby Corp. v. Boatmen's Bank and Trust Co., 713 S.W. 2d 517,
535-37 (Mo. App. 1986); St. Benedict's Development Co. v. St. Benedict's
Hosp., 811 P.2d 194, 199-200 (Utah 1991).
45
PEB Commentary No. (Section 1-203), supra note 42, reprinted
in[FINDEX and PEB Commentaries] UCC REP. Serv. at 5.
9
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
33 “This section [1-203] does not support an independent cause of
action for failure to perform or enforce in good faith. Rather,
this section means that a failure to perform or enforce, in good
faith, a specific duty or obligation under the contract, con-
stitutes a breach of that contract or makes unavailable, un-
der the particular circumstances, a remedial right or power.
This distinction makes it clear that the doctrine of good faith
merely directs a court towards interpreting contracts within
the commercial context in which they are created, performed,
and enforced, and does not create a separate duty of fairness
and reasonableness which can be independently breached.”46
34 Thus the UCC general good faith obligation has been treated as a
relatively weak background or interpretative principle lacking suf-
ficient independence to support a cause of action for breach unless
the breach can be attached to another legal rule, or a particular ex-
press or implied contract provision. This undoubtedly reflects the
traditional distrust in the English common law tradition, which
is the foundation for U .S. contract law, of the vagueness of the
good faith concept, and the sense that a strong good faith prin-
ciple would give judges a dangerous power to create contractual
obligations to which the parties had not actually agreed.47 The in-
46
UCC §1-203, cmt. The recently-approved revisions to UCC Article 1
mentioned in the text accompanying notes 22-23 supra change none of this.
Except for renumbering the section that provides for the UCC general good
faith obligation (currently §1-203, changed to §1-304 in revised Article 1)
and changing the definition of “good faith” (as described previously), the
revisions leave the UCC good faith obligation substantively untouched, and
the language from the current official comment quoted in the text
accompanying this note is continued verbatim in the revised version. See
Approval Draft of Revision of UCC Article 1, supra note 22, §1-304 and
“preliminary comment” thereto.
47
Cf. E. Allan Farnsworth, Duties of Good Faith and Fair Dealing under the
UNIDROIT Principles, Relevant International Conventions, and National
Laws, 3 TUL. J. INT'L and COMP. L. 47, 55 (1995) (noting that the CISG
(see supra note 11) lacks an express provision imposing a good faith obligation
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terpretation of the UCC general [page 310] good faith obligation as
a limited and subsidiary interpretative principle stands in contrast
to the assertive role for good faith envisioned by the drafters of the
PECL.
B. Specific Examples of the Application of the Good Faith 35
Obligation
The fundamental difference between the weak conception of good 36
faith under the UCC and the robust good faith principle of the
PECL can be most clearly demonstrated by comparing the appli-
cation of the two good faith obligations to specific situations. The
UCC material for such a comparison is readily available: courts
have applied the UCC good faith provisions in hundreds of reported
decisions over the decades during which the Code has been in force.
To my knowledge, however, no tribunal has yet based a decision on
the PECL good faith principle. Nevertheless, there already exist
several descriptions of how the drafters of the PECL envisioned its
good faith provision would apply to particular factual scenarios:
the comment to PECL Article 1:201 contains five “illustrations” of
the application of the provision, and the drafters included other
comments suggesting how the good faith concept would apply to
specific situations. A good preliminary indication of how the good
faith principles of the UCC and the PECL compare “in action”
can be obtained by comparing the results under the PECL and the
UCC in the fact situations mentioned in the PECL comments. The
results of this comparison fall into three categories; in some situ-
ations, the good faith principles of the PECL and the UCC yield
on parties to international sales contracts because some delegates to the
diplomatic conference at which the CISG was approved, “including delegates
from common law countries, feared that this would be too unrestricted a
mandate to judges in an international setting and therefore opposed any
references to a general principle of good faith.”)
10
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
the same result; in a second group of situations, U.S. law employs
doctrines other than good faith to produce results similar to those
reached under the PECL good faith principle; in a third set of sit-
uations, U.S. law appears to reach a different outcome than that
produced by the PECL good faith provision.
37 1. Termination for Trivial Breach
38 One example of how the drafters conceived the PECL good faith
provision would apply to a particular factual scenario is found in
Part B of the comment to PECL Article 1:201. To illustrate the
point that the good faith obligation “may take precedence over
other provisions of these Principles when a strict adherence to
them would lead to a manifestly unjust result,” [page 311] the com-
ment notes that “even if the non-performance of an obligation is
fundamental because strict compliance with the obligations is of
the essence of the contract under Article 8:103, a party would not
be permitted to terminate because of a trivial breach of the obli-
gation.”48 The reference to PECL Article 8:103 presumably is to
part (a) thereof, which permits parties to agree that any failure to
perform the terms of a contract will constitute “fundamental non-
performance.”49 A “fundamental non-performance,” in turn, allows
the aggrieved party, inter alia, to terminate the contract.50 In
other words, the comment indicates that, even if the contract re-
quires “perfect” performance, a party who suffers a breach will not
48
PECL, supra note 1, art. 1:201, cmt. B, at 113 (“Not confined to specific
rules”).
49
PECL Article 8:103(a) provides that “[a] non-performance of an obligation
is fundamental to the contract if: (a) strict compliance with the obligation is
of the essence of the contract. ...” As a comment to PECL Article 8:103
explains: PECL, supra note 1, art. 8:103, cmt. B, at 364 (“Compliance with
contractual obligations”).
50
See id. art. 9:301(1).
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have the right to terminate for a trivial breach if doing so would
violate its obligation of good faith under PECL Article 1:201.
The UCC good faith provisions probably yield the same result. For 39
example, a Texas Appeals court construing a buyer's rights under
the “perfect tender rule” of UCC section 2-601, which permits a
buyer to reject goods if they fail “in any respect to conform to the
contract,” stated:
“If the evidence does establish non-conformity in some respect, 40
the buyer is entitled to reject if he rejects in good faith. [UCC
section 1-203] provides that, ”Every contract or duty within
this Act imposes an obligation of good faith in its performance
or enforcement.“ Since the rejection of goods is a matter of
performance, the buyer is obligated to act in good faith when
he rejects the goods. ... Evidence of circumstances which in-
dicate that the buyer's motivation in rejecting the goods was
to escape the bargain, rather than to avoid acceptance of a
tender which in some respect impairs the value of the bargain
to him, would support a finding of rejection in bad faith. ...
Thus evidence of rejection of [page 312] goods on account of
a minor defect in a falling market would in some instances be
sufficient to support a finding that the buyer acted in bad faith
when he rejected the goods.”51
51
Printing Center of Texas, Inc. v. Supermind Publishing Co., 669 S.W. 2d
779, 784 (Tex. App. 1984). As authority for its views on good faith and
rejection of goods, the Supermind court cited Neumiller Farms, Inc. v.
Comett, 368 So. 2d 272 (Ala. 1979), which held that a buyer's rejection of
potatoes was invalid because it was done in bad faith. In Neumiller Farms, the
buyer claimed that the goods breached a clause in the contract requiring that
potatoes delivered under the contract be “to buyer satisfaction.” The evidence
strongly suggested that the potatoes tendered by the seller were perfectly
suitable, and that the buyer was searching for a pretext to escape the fixed
price contract after market prices for potatoes fell steeply. Courts have long
implied a good faith obligation in connection with personal satisfaction clauses
such as that invoked by the buyer in Neumiller Farms. See JOHN EDWARD
11
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
41 This approach was adopted by a Kansas Appeals Court in Baker
v. Ratzlaff,52 where a seller of popcorn invoked a contract clause,
included at the seller's insistence, giving him the right to terminate
the contract if the buyer failed to pay upon delivery.53 The buyer, a
commercial popcorn dealer, had received the first two deliveries un-
der the contract.54 The seller had not requested nor did the buyer
make payment upon delivery.55 Instead, following its normal prac-
tice, the buyer issued the seller “weight tickets” which at the end
of each week would be sent to the buyer's administrative offices for
payment by check.56 Although the buyer's administrative offices
were on the route the seller took in making deliveries, the seller
did not stop and seek payment after making the first two deliver-
ies.57 When the buyer contacted the seller to inquire about future
deliveries, the seller said nothing about payment for the first two
deliveries.58 Approximately a week after making the initial deliver-
ies, after the market price of popcorn had risen sharply, the seller
unexpectedly issued a notice terminating the contract because the
[page 313] buyer had failed to pay for the first installments upon
delivery.59 Immediately after receiving the notice, the buyer issued
checks for the first two deliveries, but the seller persisted in the ter-
mination and resold the balance of his popcorn at the higher market
MURRAY, JR., MURRAY ON CONTRACTS §103B at 565 (3rd ed. 1990).
Thus the holding in Neumiller Farms can be narrowly understood as an
application of the traditional doctrine that personal satisfaction clauses must
be used in good faith rather than as an example of a general obligation under
the UCC to reject goods only in good faith. Indeed, the court never actually
cited or invoked the general good faith obligation under UCC §1-203.
52
564 p .2d 153 (Kan. Ct. App. 1977).
53
Id.
54
Id.
55
Id.
56
See id. at 155-56.
57
See Baker, 564 p .2d at 155.
58
See id.
59
See id.
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prices.60 The trial court, later affirmed by the appeals court, held
that the seller had violated his obligation of good faith under UCC
section 1-203 “by declaring a termination of the contract upon a
technical pretense,”61 and the buyer was awarded damages.62
Thus, the UCC good faith principle has been construed to limit a 42
party's right to terminate a contract because of a trivial breach,
even where the law grants the party a right to terminate for any
breach. In this scenario, the UCC good faith doctrine operates in
much the same way as the PECL good faith obligation. This con-
vergence in result is not particularly surprising. According to the
Notes to PECL Article 1:201, even English law, which does not rec-
ognize an implied general obligation of good faith in its contract law
and which the PECL Notes identify as the European jurisdiction in
which the good faith principle has made the least “penetration,”63
reaches the same result.64 Limiting a party's right to terminate
a contract in bad faith for a trivial breach thus appears to be a
minimal requirement of good faith, found even in jurisdictions with
the least robust conception of the principle. It is to be expected
that the UCC, which includes an express general obligation of good
faith, should be interpreted to provide for this result, particularly
when English law (in which, outside of Louisiana, U.S. contract law
60
See id.
61
See id. at 156.
62
See id. at 155. U.S. courts have reached similar results without invoking
the obligation of good faith. See, e.g., Foundation Dev. Corp. v. Loehmann's,
Inc., 788 P.2d 1189 (Ariz. 1990) (invoking the material breach doctrine in
refusing to permit a lessor to terminate a commercial lease merely because the
lessee was two days late in making lease payments, despite a clause in the
lease providing that “time is of the essence” of the contract).
63
See PECL, supra note 1, art. 1:201, at 116.
64
See id. at 117 (asserting that English courts “have on occasion limited the
right of a party who is the victim of a slight breach of contract to terminate
the contract on that ground when the real motive appears to be to escape a
bad bargain” [citing cases]).
12
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
has its roots) does so. [page 314]
43 2. Good Faith in Contract Formation (PECL Illustration
1)
44 The comments to PECL Article 1:201 contain five formal illustra-
tions of how the PECL good faith obligation would apply to specific
situations. Illustration 1 relates to contract formation:
45 “In its offer to E, A specifies that in order for E's acceptance to
be effective E must send it directly to A's business headquarters
where it must be received within 8 days. An employee of E
overlooks this statement and sends the acceptance to A's local
agent who immediately transmits it to A's headquarters where
it is received 4 days later. A cannot avoid the contract.”65
46 According to the PECL comment, this result illustrates a more
general axiom: “The principle of good faith and fair dealing also
covers situations where a party without any good reason stands on
ceremony.”66
47 If the situation in Illustration 1 arose under the UCC, it would al-
most certainly not be treated as an issue of good faith. As was
discussed previously,67 the good faith obligation provided for by
UCC section 1-203 has been held to arise only when some “con-
tract or duty” governed by the UCC already exists, and thus it
does not extend into the pre-contractual period. While other prin-
ciples of U.S. law that may serve to police bad faith behavior have
been applied to the negotiating phase of the contracting process
-perhaps most famously, the promissory estoppel doctrine in the
65
PECL, supra note 1, art. 1:201, cmt., illus. 1, at 114.
66
Id.
67
See supra text accompanying notes 25-34.
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well-known case of Hoffman v. Red Owl Stores, Inc.68 -- the good
faith principle has not. This stands in marked contrast to most Eu-
ropean jurisdictions, which recognize a good faith obligation (often
associated with the Latin phrase “culpa in contrahendo”) applicable
to parties engaged in negotiating a contract.69 [page 315]
On the specific facts of Illustration 1, a different result could well 48
be reached under the UCC. U.S. general contract law follows the
maxim that “the offeror is master of the offer,” with the consequence
that offerors are permitted to specify the precise manner in which
their offers can be accepted.70 No contract is formed if the specified
manner of acceptance is not followed.71 Indeed, the Restatement
(Second) of Contracts contains the following illustration of this rule,
which is in effect a counter-example to PECL Illustration 1.
“A sends a letter to B stating the terms of a proposed con- 49
tract. At the end he writes, `you can accept this offer only by
signing on the dotted line below my own signature.' A replies
by telegram, `I accept your offer.' There is no contract.”72
According to this example, U.S. general contract law permits an 50
offeror who has specified an exclusive manner of acceptance to act
contrary to the comment to the PECL good faith provision: in other
68
133 N.W.2d 267 (Wis. 1965).
69
See PECL, supra note 1, art. 2:301, at 191-192 (describing the good faith
obligation that arises during contract negotiations under the laws of Germany,
Austria, Greece, Portugal, Italy, Spain, France, Luxembourg, Denmark and
Sweden). PECL Article 2:301 expressly adopts this approach, providing
specifically for liability if contract negotiations are conducted or broken off
“contrary to good faith and fair dealing.”
70
See RESTATEMENT (SECOND) OF CONTS. §30(1) and cmt. a (1981)
(“The offeror is the master of his offer. ... [T]he offeror is entitled to insist on
a particular mode of assent.”).
71
See id.§60 and cmt. a.
72
Id.§30, cmt a, illus. 1 For another example to the same effect, see
id.,§60, cmt. a, illus. 3.
13
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
words, under U.S. law, a party apparently is permitted “without
good reason to stand on ceremony.” On the other hand, if an of-
feror fails to indicate a specific and exclusive manner for accepting
the offer, U.S. general contract law permits the offeree to accept
in any reasonable manner.73 The Restatement (Second) of Con-
tracts, furthermore, suggests a preference for construing language
that specifies a manner of acceptance as not intended to be ex-
clusive, thus permitting other reasonable methods of accepting.74
The UCC contract formation rules follow the same line. UCC sec-
tion 2-206(1) permits an offeror to specify an exclusive manner of
acceptance, but only if it is done “unambiguously.”75 Otherwise,
according to UCC section [page 316] 2-206(1)(a), the offeree can
accept “in any manner and by any medium reasonable in the cir-
cumstances.”76
51 Applying UCC section 2-206(1) to Illustration 1 may well yield a
result contrary to that under the PECL. If A in that illustration
has “unambiguously” indicated that B must send its acceptance di-
rectly to A's business headquarters, as the facts suggest is the case,
no contract would result under the UCC even though A received
the acceptance through his or her agent in a timely fashion. The sit-
uation is analogous to the illustration in the Restatement (Second)
of Contracts where the offeror receives a telegraphic acceptance in-
stead of the countersignature acceptance specified in the offer, and
no contract arises. Of course in a situation like PECL Illustration
1, a U.S. court would likely be eager to find some ambiguity in A's
73
See id.§30(2).
74
See id.§60 and cmt. a. See also,§30 cmt. b (“Insistence on a particular
form of acceptance is unusual. Offerors often make no express reference to the
form of acceptance; sometimes ambiguous language is used. Language
referring to a particular mode of acceptance is often intended and understood
as suggestion rather than limitation; the suggested mode is then authorized,
but other modes are not precluded.”).
75
UCC §2-206(1).
76
UCC §2-206(1)(a).
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offer that would permit a finding that the specified manner of ac-
ceptance was not intended to be the only way to accept. If no such
ambiguity can be found, however, no contract would be formed.77
The UCC good faith obligation, furthermore, would not change that
result, because it would not even apply to the contract-formation
stage of the relationship between A and B.
There are several other doctrines available under the UCC that 52
might serve to protect B in a situation like that in PECL Illus-
tration 1. I have already mentioned Hoffman v. Red Owl Stores,
Inc.,78 which invoked promissory estoppel to police misbehavior
during the contract-formation stage. This case held that one who
represents that a contract will be entered into, knowing such rep-
resentations will be relied upon by the other party to the negoti-
ations (and, indeed, encouraging such reliance), is liable for losses
incurred by the other party when the first party later refuses to
enter into the contract. Although the case was decided under gen-
eral contract law rather than the UCC, its approach is available in
UCC transactions as a “supplementary principle” of contract law
not displaced by specific rules of the Code.79 Unfortunately for B,
the Red Owl doctrine requires proof both that the aggrieved party
relied upon some promise or representation, and that such reliance
was [page 317] foreseeable to the party making the promise or rep-
resentation. There is no proof of either element on the facts of
PECL Illustration 1.
Waiver is another doctrine that has been invoked to overcome an 53
offeree's failure to employ an exclusive manner of acceptance. In
Empire Machinery Go. v. Litton Business Telephone Systems,80
Empire made a written offer to purchase certain telephone switching
77
See UCC §2-206(1).
78
133 N.W.2d 267 (Wis. 1965).
79
See UCC §1-103.
80
566 P.2d 1044 (Ariz. 1977).
14
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
equipment from BTS Litton. The offer stated that it could be
accepted “only upon approval, acceptance, and execution hereof
by BTS at its home office,” and it included a signature line for
such execution.81 BTS never signed the offer, but both parties
behaved as if a contract had been entered into (e.g., representing
3. Luring a Party into a Time-Bar (PECL Illustration
to third parties that a contract had been formed, and submitting
and cashing a down payment check). The court held that, under
UCC section 2-206(1), the offer specified an exclusive manner of
acceptance (BTS signing the offer sheet) that had not been followed,
but that a contract had nevertheless been formed:
54 “[I]t is clear under such circumstances that the offeror who has
the power to control the manner of acceptance may waive that
requirement. It is equally clear that the offeree can rely upon
that manner of acceptance specified in the contract and the
offeror's `waiver' of the manner of acceptance cannot create a
contract without the assent of the offeree. This assent may be
sufficiently expressed by the conduct of the soliciting offeree so
as to bring into being a binding contract.”82
55 The court found the conduct in the case was sufficient to establish
a waiver by the offeror of the exclusive manner of acceptance, and
acquiescence in such waiver by the offeree, thus permitting a con-
tract to be formed despite BTS' failure to sign the offer sheet. The
Empire waiver doctrine, however, requires affirmative language or
conduct on the part of the offeror indicating that it is not insisting
upon the exclusive manner of acceptance specified in the offer. Un-
fortunately for B in PECL Illustration 1, there is no evidence that
A waived the requirement that B transmit the acceptance directly
to A. [page 318]
56 In short, without additional or changed facts, the result in Illustra-
81
Id. at 1046.
82
Id. at 1048.
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tion 1 to the PECL good faith provision would almost certainly be
different under the UCC than under the PECL, and the UCC good
faith doctrine would not alter that conclusion.
57
2)
The second illustration of the application of the PECL good faith 58
principle involves a party who dishonestly manipulates its contract-
ing partner into refraining from pursuing a claim until the claim is
time-barred:
“The contract between A and B provides that A must bring 59
suit against B within two years from the final performance by
B if A wants to make B liable for defects in B's performance.
Some time before the expiration of this time limit A discovers a
serious defect in B's performance and notifies B that it intends
to claim damages. B uses dilatory tactics to put A off. On
several occasions it assures A that A has no reason for concern.
B undertakes to look into the matter, but insists that it will
have to investigate it carefully. When after the expiration of
the two year's time limit, A loses patience and sues B, B invokes
the time limit. Not having acted in good faith, B is estopped
from relying on the time limit.”83
The same result would likely be reached if the UCC applied to the 60
contract between A and B, although the UCC good faith provision
would probably not be invoked on these facts. The doctrine likely
to be used if the UCC applied in Illustration 2 is equitable estop-
pel.84 Faced with a situation where one party manipulated the
83
PECL, supra note 1, art. 1:201, cmt., illus. 2, at 114.
84
Equitable estoppel is “[a] defensive doctrine preventing one party from
taking unfair advantage of another when, through false language or conduct,
the person to be estopped has induced another person to act in a certain way,
15
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
other into sitting on a claim until the time limit imposed by the
statute of limitations in UCC section 2-725 expired, several courts
have held that the breaching party was equitably estopped from
pleading the time-bar. For example, in City of Bedford v. James
Leffel and CO.,85 a buyer of machinery delayed pursuing a claim in
reliance upon the seller's [page 319] assurances that it would find
and fix problems with the machinery . When the seller later failed
to correct the defects and the buyer sued, the trial court granted
the seller summary judgment on the basis that the four year statute
of limitations in UCC section 2-725 had expired. The Fourth Cir-
cuit Court of Appeals reversed, holding that under the equitable
estoppel doctrine
61 “... one cannot justly or equitably lull his adversary into a false
sense of security, and thereby cause his adversary to subject his
claim to the bar of the statute, and then be permitted to plead
the very delay caused by his course of conduct as a defense to
the action when brought.”86
62 Similarly, in L.R. Foy Construction Co. v. Dakota State Cement
Plant Commission,87 buyers who failed to receive contracted-for
cement delayed bringing suit in reliance upon the seller's represen-
tations that it was fairly allocating cement to its customers. The
trial court dismissed the buyers' action as barred by the statute
of limitations in UCC section 2- 725. The South Dakota Supreme
Court reversed, holding that the doctrine of equitable estoppel pre-
vented the seller from using the statute of limitations as a defense.88
with the result that the other person has been injured in some way.” BLACK's
LAW DICTIONARY 571 (7th ed. 1999) (sub-entry for “equitable estoppel”
under “estoppel”).
85
558 F.2d 216 (4th Cir. 1977).
86
Id. at 218 (citation omitted).
87
399 N.W.2d 340 (S.D. 1987).
88
See id. at 343. Although the UCC does not expressly provide for equitable
estoppel, the court held that the doctrine is applicable to UCC transactions
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In Foy, the court laid out the requirements of equitable estoppel as
follows: First, there must be false representations or concealment
of materials facts; second, the party that was misled must not have
known the actual facts; third, the misrepresentations must have
been made with the intention that they be acted upon;89 fourth,
the party to whom the misrepresentations were made must have
relied on these statements to their detriment.90 These elements ap-
pear to be satisfied on the facts of PECL Illustration 2. Thus, it
is likely that a court applying the [page 320] UCC would reach the
same result as a tribunal applying the good faith provision of the
PECL.
Although facts like those in Illustration 2 are unlikely to invoke the 63
good faith provisions of the UCC, the equitable estoppel doctrine
that would apply under U.S. law is close in spirit to the good faith
approach employed under the PECL. In fact, the result in the PECL
illustration itself is phrased in terms of estoppel: “Not having acted
in good faith, B is estopped ?”91 Thus the PECL and the UCC
approaches to Illustration 2 are very similar indeed. The fact that
U.S. law avoids invoking the good faith principle in this situation
is, nevertheless, significant. It suggests an inclination to confine the
reach of good faith doctrine, perhaps out of distrust for its potential
power. On the other hand, the willingness of the PECL drafters
to use good faith to resolve Illustration 2 evidences support for an
expansive view of the role of the good faith doctrine.
via UCC §1-103, which states that “the principles of law and equity”
supplement the provisions of the Code unless displaced by particular
provisions of the UCC. See id. at 343, 345.
89
In Bedford v. Leffel, the 4th Circuit emphasized that equitable estoppel
doctrine does not require an intentional misrepresentation, so long as the
misled party reasonably relied on inaccurate information supplied by the party
to be estopped. See 558 F.2d at 218.
90
See 399 N.W.2d at 344 (citing Taylor v. Tripp, 330 N.W.2d 542 (S.D.1983)).
91
PECL, supra note 1, art. 1:201, cmt., illus. 2, at 114.
16
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
64 4. Applying Good Faith to Supersede the Parties'
Agreement (PECL Illustration 3)
65 Illustration 3 in the comment to the PECL good faith provision
is designed to demonstrate that, “[i]n relationships that last over a
period of time (Dauerschuldverh�¤ltnisse) such as tenancies, in-
surance contracts, agency and distributorship agreements, partner-
ships and employment relationships, the concept of good faith has
particular significance as a guideline for the parties' behaviour.”92
In fact, Illustration 3 demonstrates an even more fundamental point
about the PECL good faith principle: that the drafters contemplate
it will be used to overrule express provisions of the parties' agree-
ment, even absent a party's misleading behavior, reliance on false
representations, or similar factors. This dimension of the PECL
good faith principle is also emphasized in the Notes to Article 1:201,
where the drafters criticize the good faith principle in English law as
“a weak one as it cannot prevail against clear contrary provisions in
the agreement.”93 By demonstrating that the good faith obligation
imposed by PECL Article 1:201 can overrule express terms of the
agreement, Illustration 3 reveals a profound gap between [page 322]
the good faith principle embodied in the PECL and the good faith
doctrine in the UCC (or, indeed, in U.S. law in general). This gap
would produce not just a different approach to facts like those in
the illustration, but most likely a different result.
66 Illustration 3 states:
67 “In 1945 A, a car manufacturer in country Y, appoints B as
its sole distributor of automobiles for country X. The contract
takes effect on January 1, 1946, and runs for one year. It
provides that A, though not obliged to do so, may give B a
one month notice if A does not wish to renew the contract. On
92
Id. at 114.
93
Id. art. 1:201, at 118.
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this condition one year contracts are issued by A and signed
by B during the following years. A does not wish to renew
the contract for 1999 and so informs B on November 30, 1998.
Considering that a contractual relationship between the parties
has lasted for 51 years, B, despite the provision on notice in the
contract, is entitled to damages because in the circumstances
the notice is too short.”94
Nothing in the recited facts of Illustration 3 suggests that A has 68
in any way represented to B that the 30-day termination provision
would not be invoked, and of course B has not relied on any such
representation. Thus there are no grounds to apply doctrines of
waiver or estoppel. The termination provision appears to have been
dutifully included in the written agreement signed by B each time
the contract was renewed, and the facts do not suggest that A has
anything but the most legitimate reasons for wishing to terminate
the contract. The sole basis for A's liability is the fact that the
contractual relationship with B has lasted 51 years, leading to the
conclusion that the 30 day notice of termination is “too short.”
There is no indication of how long in advance it would be necessary
for A to give notice of termination in order to avoid liability, nor any
suggestion of how A could go about determining this matter now
that the express term of the written agreement has become invalid.
The conclusion that 30 days notice is too short is presented without
explanation or justification. Perhaps A has entirely lost the right
to terminate the contract, no matter how much advance notice is
given. Could A have avoided this result by emphasizing, at the
time of each annual contract renewal, that it wished to retain the
right to terminate with 30 days notice, and might [page 322] well
choose to exercise it? Is there some other way for A to preserve
its right to terminate? Did B have any obligation, at the time it
signed renewal contracts that incorporated the 30-day termination
94
Id. art. 1:201, cmt., illus. 3, at 114.
17
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
provision, to inform A that B would not be bound by the provision,
or to suggest to A how much advance notice would be necessary?
The reader of Illustration 3 is not enlightened.
69 The conception of the good faith principle suggested by Illustration
3 includes the kind of peremptory judicial power to make or alter
the parties' agreement that has traditionally deterred U.S. law from
a whole-hearted embrace of a robust good faith concept. A com-
ment to PECL Article 1:201 suggests that the application of the
good faith principle to override an express contract term (or even a
legal rule) in order to achieve a court's sense of general justice may
be limited by considerations of “certainty and predictability in con-
tractual relationships.”95 The comment, however, is left as a vague
and undefined limitation on the good faith principle with no exam-
ple given of the circumstances in which it might come into play.
At any rate, if the UCC applied to Illustration 3, the approach and
the result would likely be quite different. Cases decided under the
UCC have repeatedly and clearly held that the obligation of good
faith does not override a contract's express terms.
70 For example, in Blalock Machinery and Equipment Co. v. Iowa
Manufacturing Co.,96 the plaintiff had been an exclusive distribu-
tor of the defendant's heavy equipment for over 27 years.97 The
distributorship agreement between the parties contained a clause
providing that either party could terminate the contract with 30
days' written notice.98 When the defendant exercised its right of
termination pursuant to this clause, the plaintiff sued, claiming that
the defendant's termination was not in good faith.99 The court held
that the Iowa version of the UCC, which applied to the dispute, did
95
Id. art. 1:201, cmt. G, at 116.
96
576 F. Supp. 774 (N.D. Ga. 1983).
97
See id. at 776.
98
See id.
99
See id. at 776-77.
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not prohibit the termination even if it was arbitrary, and that the
Code's good faith [page 323] obligation did not override an express
term of the contract permitting such termination:
“The court recognizes that the good faith obligation of the 71
UCC has been adopted by Iowa ... and is applicable to dis-
tributorship contracts, however, the parties have not cited and
the court has not found any cases applying Iowa law that hold
that the good faith obligation overrides the express terms of
the contract. In the absence of any authority, the court ? is
not persuaded that the section 1-203 good faith obligation can
be used to override or strike express contract terms.”100
To similar effect is Grand Lightand Supply Go., Inc. v. Honeywell, 72
Inc.,101 where the plaintiff had served as a distributor for Micro
Switch, a division of Honeywell, since approximately 1947.102 In
1977 Micro Switch issued an “Authorized Distributor Policy” that,
for the first time, provided Micro Switch and its distributors the
right to terminate the relationship with 30 days' written notice.103
In 1978, Micro Switch gave notice that it was terminating the dis-
tributorship agreement with the plaintiff, and the plaintiff sued.104
The district court found that Micro Switch's termination had vi-
olated its obligation of good faith under the UCC and awarded
damages,105 but the Second Circuit reversed, holding that:
“The UCC good faith provision may not be used to override ex- 73
plicit contractual terms. Because the record reveals no reason
for ignoring the contract's terms, we hold that where the con-
100
Id. at 777. Blalock relied heavily on Corenswet, Inc. v. Amana
Refrigeration, Inc., 594 F.2d 129 (5th Cir.), cert. denied, 444 U.S. 938 (1979).
101
771 F .2d 672 (2nd Cir. 1985).
102
See id. at 674.
103
See id. at 674-75.
104
See id. at 675.
105
See id. at 675-76.
18
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
tract expressly provides for termination on thirty days notice,
no good faith requirement should be implied to override the
contractual provisions. Therefore, the termination was proper
within the terms of the contract.”106
74 As these cases illustrate, under the UCC (and U .S. law in general)
a long term relationship between the parties is not grounds for find-
ing that the good faith obligation supersedes an [page 324] express
contractual right to terminate.107 Indeed, U.S. law generally holds
that the express terms of a contract prevail over the good faith obli-
gation.108 Thus, should a situation like PECL Illustration 3 arise
under U .S. law, the result would likely differ from the outcome
under the PECL.
75 5. Good Faith and Reliance, Including Reliance on a
Bank's Mistaken Payment (PECL Illustration 4)
76 Illustration 4 in the comment to the PECL general good faith pro-
vision states:
77 “An importer asked its bank to collect on a negotiable instru-
ment. The bank mistakenly reported to the customer that
106
Id. at 679.
107
For other cases holding that an express contractual right to terminate is
not over-ridden by the obligation of good faith, see Sons of Thunder, Inc. v.
Borden, Inc., 666 A.2d 549, 560-63 (N .J .Super. Ct. 1995), rev'd on other
grounds 690 A.2d (575 (N.J. 1997) (involving UCC good faith obligation);
Triangle Mining Co. v. Stouffer Chemical Co., 753 F.2d 734 (9th Cir. 1985)
(involving common law good faith obligation).
108
See, e.g., General Aviation, Inc. v. Cessna Aircraft Co., 915 F .2d 1038
(6th Cir. 1990); Cardinal Stone Co. v. Rival Mfg. Co., 669 F.2d 395 (6th Cir.
1982); Flight Concepts Ltd. Partnership v. Hoeing Co., 819 F. Supp. 1535 (D.
Kan. 1993); Frank Lyon Co. v. Maytag Corp., 715 F. Supp. 922 (E.D. Ark.
1989); Highway Equip. Co. v. Caterpillar, Inc., 707 F. Supp 954 (S.D. Oh.
1989).
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the money had been paid, and paid the customer its value.
When it was discovered that the amount had not been paid,
the importer had irrevocably credited the amount to its for-
eign business partner. The bank is estopped from reclaiming
the payment.”109
The comment indicates that this illustration exemplifies “a general 78
principle that a person should not be allowed to set up the invalidity
of an act or another reason for its not being binding upon him
when he has induced another person to alter his position on the
faith of the act.”110 In other words, “[a] particular application of
the principle of good faith and fair dealing is to prevent a party on
whose statement or conduct the other party has reasonably acted
in reliance, from adopting an inconsistent position.”111
Under the UCC, the result in Illustration 4 would depend on facts 79
not specified. That is because the applicable part of the UCC --
Article 4 (“Bank Deposits and Collections”) -- deals with [page 325]
such a situation by reference to specific rules rather than by applica-
tion of a broad standard like “good faith.” The outcome on the facts
of Illustration 4 would likely depend on whether the “provisional”
credit that the bank presumably would have given its customer (the
importer) when he (the importer) deposited the negotiable instru-
ment for collection had become “final,”112 and whether the bank no-
109
PECL, supra note 1, art. 1:201, cmt., illus. 4, at 115.
110
Id. at 115.
111
Id. at 114.
112
See UCC §4-214(a) (providing that, when an “item” (which, under UCC
§4-104(a)(9), includes a negotiable instrument) is not honored, a collecting
bank that has given provisional settlement to its customer has a right to
“charge back” the customer's account or obtain a refund, but such rights
terminate when settlement becomes final); UCC §4-215(a) and (d) (specifying
when settlements for an item become final). See also UCC §4-201(a)
(specifying that a bank that receives an item is presumed to be an agent for
collection purposes rather than the owner of the item, and that any settlement
given by the bank for an item, even if the customer makes a withdrawal based
19
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
tified the importer of the non-payment within the bank's “midnight
deadline” or a further “reasonable time.”113 The purposes behind
these UCC rules undoubtedly include protecting a bank customer
who has reasonably relied on a bank that is collecting a negotiable
instrument -- which presumably is also the purpose served by hold-
ing the bank liable under the PECL good faith provision. The
significant point, however, is that U.S. law has chosen to deal with
the situation not by invoking the broad principle of good faith, but
instead by setting up specific rules that define the circumstances
in which a bank customer can reasonably rely on payment for a
negotiable instrument.
80 The fact that the analysis of Illustration 4 under the UCC would
not implicate the good faith principle suggests a larger difference
between the approach to good faith in the UCC and the PECL.
U.S. lawyers tend to view the good faith principle as [page 326] a
last resort, to be invoked only when more specific and focused doc-
trines have failed. In other words it is“ preferable, under U.S. law,
to avoid invoking the general and vague good faith principle. The
PECL, in contrast, appears to view a resolution based on the good
faith principle as preferable to other solutions, apparently seeking
to expand the good faith umbrella to encompass as much as possi-
on the settlement, is presumed to be provisional until it becomes final under
the rules of UCC Article 4). Comment 10 to UCC §4-215, summarizes the
situation as follows: “If previously [a bank] gave to its customer a provisional
credit for the item in an account its receipt of final settlement for the item
`firms up' this provisional credit and makes it final. When the credit given by
it so becomes final, in the usual case its agency status terminates and it
becomes a debtor to its customer for the amount of the item.”
113
See UCC §4-214(a) (stating that a collecting bank that has not received
final settlement for an item and fails to return the item or give notice to its
customer of the facts by its midnight deadline or a “longer reasonable time
after it learns the facts” is “liable for any loss resulting from the delay”). As
defined in UCC §4-104(a)(10), a bank's “midnight deadline” for a negotiable
instrument is “midnight on its next banking day following the banking day on
which it receives the relevant item. ...”
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ble. Thus, as the comments to the PECL good faith provision make
clear,114 Illustration 4 is intended as a specific example of a much
broader aspect of the PECL good faith concept -- the protection
of those who have reasonably relied on a party's words or actions.
U.S. law, in contrast, tends to view reliance-oriented rules (e.g., eq-
uitable estoppel and promissory estoppel) not as a sub-category of
good faith, but as distinct, independent doctrines. It is interesting
that the PECL drafters express the result of applying the good faith
principle to the facts of Illustration 4 in terms of estoppel (”The
bank is estopped from reclaiming the payment“), an approach that
a U .S. lawyer may well view as a confusing conflation of two dis-
tinct principles: the principle of protecting reasonable reliance, and
the principle of good faith. Indeed, the invocation of good faith
in connection with an estoppel analysis, and the idea that protect-
ing reasonable reliance in general is an aspect of the good faith
doctrine, call to mind a complaint about the civil law voiced by
a prominent U.S. contracts scholar: ”Civil lawyers demonstrate an
unsettling tendency to use the doctrine of good faith as a cloak with
which to envelop other doctrines. ? In this fashion, many contract
doctrines can be subsumed under a single amorphous doctrine of
good faith."115
Interestingly, in another situation that shares elements of PECL 81
Illustration 4, the UCC does employ the good faith principle to
help protect a party who has relied on mistaken payment of a ne-
gotiable instrument. Under UCC section 3-418, a drawee who has
114
See PECL, supra note 1, at 114-15.
115
Farnsworth, supra note 47, at 60-61. Another possible example of this
phenomenon involves the rule that damages for losses which the aggrieved
party could have avoided by taking reasonable action are not recoverable (the
mitigation of damages principle). PECL Article 9:505 provides for such a rule.
The comments to Article 1:201, however, indicate the mitigation rule is a
specific application of the general good faith obligation. See PECL supra note
1, art. 1:210, cmt. D, at 115.
20
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
paid an instrument by mistake may be entitled to [page 327] resti-
tution from the payee.116 UCC section 3-418(c), however, provides
that the drawee cannot claim this remedy against “a person who
took the instrument in good faith and for value or who in good
faith changed position in reliance on the payment.” Thus, the UCC
employs the good faith principle to determine the rights of the par-
ties in this situation, although the UCC (in contrast to the PECL)
focuses on the good faith of the party receiving payment rather
than the good faith of the payor. Note, however, that UCC section
3-418(c) provides for a specific good faith obligation, rather than
relying on the general good faith obligation in UCC section 1-203.
This approach suggests that the drafters lacked confidence that the
UCC general good faith obligation was sufficiently developed and
robust to yield the desired results in situations covered by that sec-
tion. This is another indication that, compared to the PECL good
faith principle, the general good faith principle in the UCC lacks
vigor.
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82 6. Good Faith and Post-Contract-Formation
Contingencies (PECL Illustration 5)
Illustration 5 in the comment to the PECL general good faith pro- 83
vision states:
“Constructor C, whose employees have fallen ill in great num- 84
bers, has asked Owner O for the time agreed for C's completion
of O's liquor store to be extended by one month. O has refused
to grant the extension. After that a license to sell liquor which
O expected to get as a routine matter is held up due to a long
lasting strike among civil servants which means that O will not
be able to use [page 328] the building until three months after
the agreed completion time. Good faith requires that O notify
C that it will not need to have the building completed on time.
See also Article 1:202.”117
116
If the drawee's mistake was failure to know that the instrument was subject
to a stop payment order or that the drawer's signature was forged, the right to
reclaim the payment is granted by UCC §3-418(a). For other types of
mistakes, the drawee's reclamation right depends on the general law of
mistake and restitution. UCC §3-418(b).
Note that the situation covered by UCC §3-418 apparently differs from the
situation in PECL Illustration 4 in that the PECL illustration appears to
involve the restitutionary rights of a bank that is collecting, on behalf of its
customer and as an agent of the customer, a negotiable instrument drawn on
another drawee. UCC §3-418, in contrast, deals with the restitutionary
rights of one that has mistakenly paid (or accepted) an instrument -- i.e., a
drawee or the maker of a negotiable promissory note. Thus UCC §3-418
would apparently not apply to the reclamation rights of a collecting bank that
has credited its customer's account for an uncollected item.
117
PECL, supra note 1, art. 1:201, cmt., illus. 5, at 115. PECL Article 1:202,
referred to at the end of Illustration 5, provides that “Each party owes to the
other a duty to co-operate in order to give full effect to the contract.”
Because Illustration 5 involves a building construction contract, it would be
outside the scope of the UCC. For this reason my discussion of Illustration 5
under U .S. law will focus on the common law of contracts.
21
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
85 A comment explains that the illustration focuses on a contract-
ing party's obligation “to show due regard for the interests of the
other party” in the “handling of contingencies which were not con-
templated in their agreement or in the rules of law governing the
contract.”118
86 Illustration 5 is not clear on the consequences of the notice that O
must give, nor on the result if the notice is not given. Presumably
O must permit C the extra month to complete the building, and O
will itself be in breach of the good faith obligation unless it comes
forward to grant the extension. Thus, as in Illustration 3 discussed
earlier, the good faith principle in illustration 5 is used to overrule
express terms of a contract. The point made in the discussion of
Illustration 3 that U.S. law generally forbids using the good faith
principle to overrule express contractual provisions119 is therefore
also relevant here.
87 There are, of course, certain U.S. doctrines that overcome express
contractual provisions. One that focuses on the effect of post-
contract-formation contingencies and that might be relevant in Il-
lustration 5 is the doctrine of impracticability, which (according
to the Restatement (Second) of Contracts) excuses a party's non-
performance of contractual duties if the performance was made “im-
practicable” by “the occurrence of an event the non-occurrence of
which was a basic assumption on which the contract was made.”120
Whether the impracticability doctrine would apply in Illustration
5 if C failed to complete the liquor store on time would depend
on facts not specified, such as whether C assumed the risk of his
employees' illness (which might, in turn, depend on the foresee-
ability at the time the [page 329] contract was formed that the
118
Id. art. 1:201, cmt. D, at 115 (“Mutual consideration”).
119
See supra text accompanying notes 95-108.
120
RESTATEMENT (SECOND) OF CONTS. §261 (1981). For contracts for
the sale of goods, UCC §2-615 states a very similar rule.
SiSU cisgw3.law.pace.edu/
employees would fall ill) and the ability of C to overcome the prob-
lem (e.g., overtime or hiring temporary replacements). The PECL
contains doctrines with a similar thrust in Article 8:108 (“Excuse
Due to an Impediment”)121 and Article 6:111 (“Change of Circum-
stances”).122 The fact that the PECL drafters did not raise the pos-
sibility of C claiming excuse under Article 8:108 or hardship under
Article 6:111 on the facts of Illustration 5 implies that the illness of
C's employees would not trigger relief under those provisions. This,
in turn, suggests that excuse under U.S. law for impracticability is
also unlikely.
PECL Articles 8:108 and 6:111, as well as the U.S. impracticability 88
doctrine, would focus primarily, if not exclusively, on C's situa-
tion and the effect that the employees' illness would have on C's
ability to perform. The fact that O's delay in acquiring the liquor
license means that C's late performance would not harm O, does
not appear relevant to the question of whether C has suffered an ex-
cusing impediment under PECL Article 8:108 or a hardship under
PECL Article 6:111. That, presumably, is why the PECL drafters
121
PECL Article 8:108(1) provides:
“A party's non-performance is excused if it proves that it is due to an
impediment beyond its control and that it could not reasonably have been
expected to take the impediment into account at the time of the conclusion of
the contract or to have avoided or overcome the impediment or its
consequences.”
122
The hardship doctrine of Article 6:111 applies if “performance of the
contract becomes excessively onerous because of a change of circumstances,”
provided that certain other specified requirements (including a requirement
that the parties could not reasonably have taken the possibility of the change
into account when the contract was formed) are met, PECL, supra note 1, art.
6:111(2). When it applies, the PECL hardship provision requires the parties
to begin negotiations to “adapt” (i.e., modify) the contract to the changed
circumstances. If the negotiations fail, a court can either terminate the
agreement or “adapt the contract in order to distribute between the parties in
a just and equitable manner the losses and gains resulting from the change of
circumstances.” Id. at art. 6:111(3).
22
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
invoked the good faith doctrine on these facts. Thus the key fact
for applying the PECL good faith principle in Illustration 5 is the
lack of harm that O would suffer from C's delayed completion of
the building. The fact that C's late performance would have only
trivial consequences for O also does not appear relevant to the im-
practicability analysis under U.S. law. The focus of section 261 of
the Restatement (Second) of Contracts and the comments to that
section are on [page 330] the difficulty that the party claiming ex-
cuse faces in performing, and the risks that such party undertook
when it entered into the contract.
89 Assuming that, under U.S. law, the illness of its employees would
not originally have permitted C to claim the impracticability ex-
cuse for non-performance, the conclusion would likely remain the
same despite the further developments that rendered C's late per-
formance harmless to O. Nor is it likely that U.S. law would permit
the good faith principle to overrule an express contract provision
setting the date for C to complete performance. Instead, U .S.
law would probably deal with the trivial harm that C's late perfor-
mance caused O through remedies rules rather than the good faith
principle.
90 Thus, if C was late in completing the building and O sued for breach
{assuming, again, that C could not claim excuse for the breach un-
der the impracticability doctrine), C's defective performance would
almost certainly be treated as an immaterial breach of contract
that would not discharge O from its duties under the contract.123
123
Several of the factors identified in §241 of the Restatement (Second) of
Contracts as relevant in determining if a breach is material strongly suggest
that late performance by C would not be deemed a material breach. The first
(and most important) consideration identified by the Restatement is “the
extent to which the injured party will be deprived of the benefit which he
reasonably expected,” RESTATEMENT (SECOND) OF CONTS. §241(a)
(1981). Because of the delay in acquiring the liquor license, C's late
completion of the building would cause O to lose very little of the benefit it
SiSU cisgw3.law.pace.edu/
As a result, O would have to pay C at the contract rate, subject
only to an offset for the damages O suffered because of C's tardi-
ness. Since O has suffered no losses from the delay, the damages
would be nominal. As a result, C would receive full payment de-
spite its late performance. Thus, under U.S. law Illustration 5 is
likely to be treated like the situation in Jacoband Youngs, Inc. v.
Kent,124 a celebrated U.S. contract case in which Justice Cardozo
of the New York Court of [page 331] Appeals found that a building
contractor's technical breach, which caused the landowner no prov-
able damages, did not excuse the landowner from paying the full
balance due under the contract. This outcome approximates the
result under the PECL of requiring O, as a matter of good faith,
to waive the contract delivery date.
Of course, there are important differences between the approaches 91
to Illustration 5 under the PECL and U.S. law. U.S. law would
probably treat the situation as involving a breach for which no rem-
edy is necessary. Under the PECL, presumably, late completion by
C would not be a breach at all. Because of the remedy provisions of
the PECL, this difference (breach without a remedy vs. no breach)
might be significant. Influenced by the civil law tradition, specific
performance is more readily available under the PECL than under
U.S. law.125 Thus under the PECL, if the original contractual com-
expected from the contract. It also appears that O could be adequately
compensated in damages for any loss it would suffer, see id. §241(b), and
that C (who would have performed, albeit late) would suffer a considerable
forfeiture if the breach were treated as material, see id.§241(c). Finally,
because C's delayed performance was forced on it by its employees' illness, its
behavior appears to comport with “standards of good faith and fair dealing,”
see id. at §241(e). Note that this final factor incorporates a good faith
inquiry into the analysis of Illustration 5 under U.S. law, although (unlike
under the PECL) it is the good faith of C rather than O that is the issue.
124
129 N.E. 889 (N.Y. 1921).
125
Whereas U.S. law treats specific performance as an exceptional remedy
available only in special circumstances, PECL art. 9:102(1) makes the
23
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
pletion date remained valid there is a greater chance that O could
obtain a court order requiring C to complete performance by that
date. Because of the operation of the PECL good faith provision,
however, O presumably could not obtain specific performance since
timely completion is no longer legally required. Under U.S. law it
is less critical to find that the contract is modified to extend the
deadline for C's performance because it is less likely that O could
obtain an order requiring C to complete within the time required
by the contract. O's remedy at law (damages) does not appear to
be inadequate -- indeed, even 0 damages appears adequate to com-
pensate O for C's delay. Thus O fails to satisfy one of the tradition
prerequisites for specific performance under [page 332] U.S. law.126
Even if this hurdle were overcome, under U.S. law, specific perfor-
mance is an equitable remedy within the discretion of the court,
and the facts of Illustration 5 strongly suggest equitable reasons for
a court to deny the remedy to O.127
availability of specific performance the general rule, subject to exceptions in
Article 9:102(2). The exceptions, it is true, are significant, and might prevent
specific performance from being ordered in Illustration 5. For example, PECL
art. 9:102(2)(b) states that specific performance is not available where
“performance would cause the debtor unreasonable effort or expense,” which
might well apply to C's situation. Despite the important limitations on
specific performance in PECL Article 9:102(2), it remains true that the
remedy is probably more readily available under the PECL than under U.S.
law. As the comment to the PECL specific performance provision indicates,
the PECL rule was designed as “a compromise” between the treatment of the
remedy in common law systems (where it is viewed as “exceptional”) and in
civil law systems (where the remedy is seen as an “ordinary” one). See PECL,
supra note 1, art. 9:102, cmt. B, at 395. (“The principle and exceptions”).
126
See RESTATEMENT (SECOND) OF CONTS. §359 (1981).
127
For example, according to the Restatement (Second) of Contracts, specific
performance should be denied when “the relief would cause unreasonable
hardship or loss to the party in breach ...” RESTATEMENT (SECOND) OF
CONTS. §364(1)(b) (1981). The comment to this provision suggests it
applies to situations involving “elements of impracticability of performance or
frustration of purpose that fall short of what is required for relief under those
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There are other significant differences between the approaches of 92
the PECL and U.S. law to Illustration 5. For example, the con-
tract might have specified that late completion must be treated as
a material breach or a “fundamental non-performance”128 relieving
O of its obligation to pay at the contract rate (i.e., a “time of the
essence” clause), or, it might have included a liquidated damages
clause specifying reductions in the price for each day that comple-
tion of the building is delayed. Although U.S. courts have shown
themselves adept at getting around such provisions when they are
convinced that delay in fact has not harmed the aggrieved party,129
the U.S. approach of treating [page 333] C's delay as a breach and
sorting out its trivial effect on O in the remedy makes it difficult
doctrines,” Id. at cmt. a. The illustration of this principle given in the
comment resembles PECL Illustration 5 in a general way:
“A, a milkman, and B, a dairy farmer, make a contract under which B is to
sell and A to buy all of A's requirements of milk, but not less than 200 quarts
a day, for one year. B may deliver milk from any source but expects to deliver
milk from his own herd. B's herd is destroyed because of hoof and mouth
disease and he fails to deliver any milk. A sues B for specific performance.
Even though B's duty to deliver milk is not discharged and B is liable to A for
breach of contract, specific performance may properly be refused on the
ground of unfairness.”
Id. at illus. 4. Like PECL Illustration 5, the Restatement illustration involves
a perfectly valid contract that has become difficult to perform because of
post-con- tract developments that are not sufficient to excuse performance.
And like PECL Illustration 5, the “balance of hardships” between the parties
to the Restatement illustration swings strongly against awarding specific
performance.
128
See PECL, supra note 1, arts. 8:103, 9:301 (defining “fundamental
non-performance” and its consequences).
129
See, e.g., Lind Building Corp. v. Pacific Bellevue Developments, 776 P.2d
977, 982 (Wash. App. 1989) (“While there is some authority that an
otherwise valid liquidated damages clause is enforceable even if there are no
actual damages, the weight of authority and the better-reasoned cases hold
that where there is no actual loss, an otherwise enforceable liquidated
damages clause is not enforceable because to do so would violate the principle
that damages should be compensatory only.”).
24
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality
to deal with such provisions. Under the PECL approach, however,
these provisions would probably not come into play because, as a
result of the good faith doctrine, the contract presumably does not
require C to complete by the scheduled date.
93 Another difference between the PECL approach and that in U.S.
law is that, under U.S. law, C may not become aware that acqui-
sition of the liquor license has been delayed, and thus completion
of the building on time is no longer important to O. Believing in-
correctly that O would suffer significant losses from late completion
(and C would become liable for significant damages), C might incur
substantial additional expenses attempting to finish the building on
time. The PECL approach has the advantage of mandating that O
notify C that completion of the building by the scheduled date is no
longer required, so that such economically-wasteful expenditures by
C would be avoided. Under the U.S. approach, however, O's self-
interest might well lead to a resolution that avoids wasteful expen-
ditures by C. The delay in receiving the liquor license presents O
with the opportunity to bargain with C for an extension to complete
the building. O might agree to such an extension in exchange for a
reduction in the price (the amount of the reduction would be deter-
mined by the parties' bargaining skills). If the parties reached such
a bargain, then C would not engage in economically-wasteful steps
to complete by the original contract date. Under this approach,
O gets an advantage (a reduced price) compared to the situation
under the PECL, where the good faith doctrine compels O to ex-
tend the completion date without receiving anything in return. It is
not clear, however, that the distributional differences between the
PECL approach and the U.S. approach favor one over the other. In
particular, it is not clear whether it is better that C, which has been
put into a difficult spot by its employees' illnesses, should receive an
extension of time for “free” (note that C's difficulties in performing
do not rise to a level allowing it to claim excuse from performing
the contract), or whether O, who may be suffering significant losses
SiSU cisgw3.law.pace.edu/
caused by the delay in receiving the liquor license, should receive
some compensation for the extension. [page 334]
The major disadvantage of the PECL approach is lack of certainty. 94
The facts of Illustration 5 permit a clear-cut application of the good
faith principle because they have clarity and simplicity only pos-
sible in hypotheticals. In reality, the delay in receiving the liquor
license might not totally eliminate the losses O would incur or the
lost opportunities it would suffer if C completes the building late.
For example, O might have entered into contracts with landsca-
pers, fixture installers and decorators which may be lost or which
may require delay payments if the building is not completed and
available as scheduled. A might be able to use the “extra” time
between scheduled completion of the building and receipt of the
liquor license to better design and adapt the space for business
purposes. How much loss and disadvantage does good faith require
O to incur in granting C an extension? Trying to predict how a tri-
bunal would react if the delayed liquor license reduced but did not
completely eliminate O's losses would be extremely difficult for O,
who after all is himself an innocent victim of circumstances beyond
his control. Or suppose (as would likely be the case in the “real
world”) that it is not completely certain that the strike among civil
servants will delay the license three months. How probable must
the delay be before O's good faith duty to grant C an extension
arises? Suppose the strike unexpectedly settles, and there is no de-
lay (or a much shorter delay than expected) in receiving the liquor
license. Does good faith demand that C now reinstate the original
due date, or at least compensate O for the losses it will now suffer
from delay? The PECL approach raises these very difficult ques-
tions and many more, and requires O to predict accurately how a
tribunal will resolve them on pain of himself being in breach of its
obligations.130
130
Comment G to the PECL good faith provision recognizes this problem
25
 Comparing the General Good Faith Provisions of the PECL and the UCC: Appearance and Reality

95 The flexibility needed to deal with uncertainty and mixed facts
highlights the advantages of a negotiated resolution (which the
U.S. approach to Illustration 5 arguably encourages) rather than
an imposed solution like that posited under the PECL good faith
doctrine in Illustration 5. Of course, the uncertainty that both O
and C would face under the PECL approach [page 335] if the facts
of Illustration 5 were more realistic might well impel the parties
to reach a negotiated solution, but the bargaining would be made
difficult by the uncertainty arising from the PECL approach. The
advantages of the PECL approach over the U.S. solution, further-
more, are difficult to see if both lead to the same result.
IV. Conclusion
96
trivial consequences for the other side.133 And in some cases, U.S.
law reaches results that differ from those obtained under the PECL
good faith principle, as in some contract formation scenarios134 and
situations that involve the continuing validity of express contract
terms in long term relationships.135 It is clear that the civil law
approach to the contractual obligation of good faith has strongly
influenced both the UCC and PECL Article 1:201. This influence
produces some significant similarities between the good faith obliga-
tions imposed by the UCC and the PECL. However, the traditional
common law distrust of the [page 336] implied obligation of good
faith and the continuing preference in U.S. legal practice for more
narrowly-tailored doctrines produce substantial differences in the
theory and application of the good faith principle under the PECL
and the UCC. [page 337]

97 On the surface, the general good faith provisions of the PECL and
the UCC appear similar. Each imposes a direct good faith obliga-
tion on the parties to a contract, and each does so in language that
is substantially (although certainly not completely) equivalent. Ex-
amination of the good faith principle in action, as applied to specific
fact scenarios, reveals a more complicated picture. Sometimes the
PECL and the UCC general good faith provisions operate in sub-
stantially identical fashion, as in the case of a “pretextual” rejection
of goods for minor defects.131 Sometimes the result of applying the
PECL good faith principle is reproduced under U .S. law without
invoking the good faith doctrine, such as where a party is lured into
neglecting a deadline for asserting legal rights132 or where changed
circumstances would cause a party's late performance to have only

when it suggests that the technique of using the good faith principle to
override an express contract term may have to yield to considerations of
“certainty and predict ability in contractual relationships,” PECL art. 1:201,
133
supra note 1, cmt. G, at 116. See supra text accompanying notes 31-42.
131 134
See supra text accompanying notes 48-64. See supra text accompanying notes 65-91.
132 135
See supra text accompanying notes 83-91. See supra text accompanying notes 91-108.

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